Title: Protecting Department of Energy Funded U.S. Technologies from
Risky Foreign Acquisition

Description: The Department of Energy is one of the largest federal
research funding agencies. While this research funding is important, so
is ensuring that companies that have licensing agreements with DOE are
meeting U.S. manufacturing requirements, and that inventions that comes
from taxpayer funding are protected against foreign acquisitions. We'll
learn more about these issues from GAO’s Candice Wright.

Related Work: GAO-24-106504, Department of Energy: Actions Needed to
Assess U.S. Manufacturing Policy and Protect Technology from Foreign
Acquisition

Released: June 2024

{Music:}

[Candice Wright:] There was concern that the policy change could have a
chilling effect on whether companies would even seek to license the
technologies funded by DOE.

[Holly Hobbs:] Hi and welcome to GAO's Watchdog Report. Your source for
fact-based, nonpartisan news, and information from the U.S. Government
Accountability Office. I'm your host, Holly Hobbs. The Department of
Energy is one of the largest federal research funding agencies.
Inventions from DOE funding have created new companies, jobs, and things
we use every day. Things like lithium-ion batteries now found in the
majority of electronic and hybrid cars. While this research funding is
important, so is ensuring that companies that have licensing agreements
with DOE are meeting U.S. manufacturing requirements, and that
inventions that comes from taxpayer funding are protected against
foreign acquisitions. DOE recently made policy changes to address these
issues. But that very shift may have had unintended consequences. We'll
learn more about these issues from GAO’s Candice Wright, who led work
for a new report out today. Thanks for joining us.

[Candice Wright:] Thank you for having me, Holly.

[Holly Hobbs:] So Candice, we looked at this big policy change in 2021.
What exactly was the change and what was the problem it was meant to
address?

[Candice Wright:] So in 2021, DOE changed its policy because it wanted
to ensure that more of the technologies that it funded actually were
subjected to U.S. manufacturing requirements. In the past, there had
been a longstanding U.S. manufacturing preference in place. However, it
didn't cover all of the technologies and inventions that might be funded
by DOE. And so, they sought to strengthen the requirements. They sought
to tighten some of the restrictions in place. And really at, in their
words, closed loopholes that enabled companies that were licensing the
technologies to ensure that those products that were coming out of those
technologies were being manufactured in the U.S.

[Holly Hobbs:] And what's been the result of this change? 

[Candice Wright:] Well, it's a little too early to tell. The policy only
took effect about two and a half years ago. And for companies that now
have licensing agreements with these enhanced manufacturing
requirements, it can take them a while to commercialize the product and
to actually manufacture the product. Nonetheless, we did talk with all
17 national labs in about 20 universities, and heard a range of concerns
from them about the policy change. In particular, there was concern that
the policy change could have a chilling effect on whether or not
third-party companies would even seek to license the technologies that
are funded by DOE. And so there was a concern that this could then have
unintended consequences and such chilling effects can be difficult to
overcome. 

[Holly Hobbs:] But why would a company be concerned about meeting these
requirements?

[Candice Wright:] Some of the reasons that companies may have concerns
is because that manufacturing capacity that may be needed to develop the
product may actually not exist in the U.S. or the materials and supplies
that are needed to manufacture the products might not be here in the
U.S., but actually are in other countries. There was also concern from
some of the universities as to whether or not they would seek to go
through the expense of patenting the inventions because if there aren’t
going to be companies seeking to license it, then it may not be a good
investment on their part. And so, with that in mind, we recommended that
DOE really take a look at getting better insights about the potential
for these unintended consequences. And also too make sure that they have
a strategy in place to assess the policy change and whether or not it's
achieving its intended goals.

[Holly Hobbs:] So beyond this policy change, which is fairly new, what
is DOE doing to oversee the technology it funds to ensure contractors or
researchers funded with DOE funding  are complying with its policies?

[Candice Wright:] So in 2022, there was a news report that a
breakthrough battery technology that had been developed with DOE funding
had actually been sublicensed to a Chinese company without the necessary
parties being aware that this occurred. And so that really caused DOE to
step up its oversight of labs’ licensing practices. They conducted two
reviews, one that focused on the lab that was involved in the
sublicensing situation. But then they also did a broader review looking
at all 17 national labs to better understand how the contractors that
manage those labs are handling licensing agreements. They found that
there was a need to strengthen internal controls and they had a series
of recommendations, including some to the contractors that manage its
labs for them to better enforce the licensing agreements but also
strengthen their monitoring of licenses and how they're implementing the
license agreements. 

[Holly Hobbs:] So that’s the national labs. What about the universities?

[Candice Wright:] Interestingly enough, while DOE had focused a lot on
the labs’ licensing practices, it hadn't done similar reviews for
universities. They have about 100 universities that account for about
40% of active licenses in their portfolio. 

[Holly Hobbs:] It seems like if you're going to have a leak, it's
probably not going to come from your own labs, is probably going to come
from an outside lab, like a university lab. And you'd think they would
be more strict with those labs or have more oversight in the first
place.

[Candice Wright:] Yeah. So, we think it’s really important that you are
looking at where all of the vulnerabilities could be and that it’s not
just with the labs, but that it also could be with universities. I think
the challenge is that there are 17 national labs that they have a more
direct relationship with. And then, you know, there are about 100
universities that they would have to oversee. Nonetheless, given the
issues that they found the labs, we think it’s equally important that
they also invest in ensuring that the universities aren’t subject to the
same kinds of lapses that they saw with the labs’ licensing practices.

[Holly Hobbs:] We’ve talked about what DOE is doing to oversee
universities’ labs. But what about the universities themselves. What are
they doing to protect U.S. inventions?

[Candice Wright:] So the labs in universities certainly have a greater
awareness of the need to monitor and enforce the licensing agreements,
and really to protect DOE funded inventions. We found that they are
requiring that licensees periodically report certain information, such
as any changes in company ownership or company management. Again, this
would allow them to have some insight as to whether or not there any
risks associated with the license agreement and the potential for
foreign acquisition of high value technologies to certain countries of
concern.

{MUSIC}

[Holly Hobbs:] So Candice just described two issues of concern--one was
whether or not companies are meeting U.S. manufacturing requirements,
and the other was that there’s oversight of these technologies to
prevent foreign acquisition. So, Candice, what more do we think the
Department of Energy should be doing to better protect U.S. inventions?

[Candice Wright:] So there are a couple of things. One, we think it will
be important that while the department has provided guidance to the labs
on how best to monitor and enforce these license agreements, they really
also need to take a look at whether or not the universities have the
appropriate licenses. The universities that we talked with noted that
they had not received similar guidance. They definitely had some
uncertainties, such as which terms and conditions to include in the
license agreements, how best to ensure that licensees are meeting the
U.S. manufacturing requirements. And so, with that in mind, we made
recommendations that the department provide more guidance to the
universities to help them strengthen their licensee monitoring and
enforcement efforts. And similarly, we also recommended that DOE provide
guidance to the labs in universities about how they can best manage any
risks associated with foreign acquisition of DOE funded technologies.

[Holly Hobbs:] And last question, what's the bottom line of this report?

[Candice Wright:] So, DOE has a few interests that it's trying to
balance. It’s focused on strengthening U.S. manufacturing of
taxpayer-funded inventions. It is also facing the challenge of how to
promote technology transfer and ensure that the research results in
commercialized products. And at the same time, protecting the
technologies against foreign acquisition. And so, we know that they are
really taking a look at this issue and that they're trying to work on
this balance. Still, as our work shows, there are some gaps and there
are some things that need their attention. For example, they will need
to evaluate the effects of their U.S. manufacturing policy change. They
will also need to give the labs and universities the tools, the
resources, and the guidance that they need to manage risks on their end.
And then I'll also just add that for other agencies who have technology
transfer missions, that the findings and recommendations in our report
can be equally instructive for them to take a look at their efforts and
whether or not there are any changes that are needed.

[Holly Hobbs:] That was Candice Wright talking about our new report on
U.S. manufacturing technologies. Thanks for your time, Candice.

[Candice Wright:] Thank you.

[Holly Hobbs:] And thank you for listening to the Watchdog Report. To
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